01—Abstract
Summary
Summary of the 10-K filed February 28, 2014. Cited figures are marked; the original filing is the authoritative source.
ServiceNow, Inc. (NOW) filed its 2013 10-K on February 27, 2014, detailing a year of substantial growth and strategic investment.
The company reported significant revenue increases, driven primarily by its subscription-based Software-as-a-Service (SaaS) model. Total revenues grew to $424.7 milliona in 2013, a substantial increase from $243.7 million in 2012, reflecting strong customer acquisition and expansion, with the customer base growing by 36% to 2,061. The company's gross profit percentage for subscription revenues improved to 75%, demonstrating operating leverage.
ServiceNow continues to heavily invest in sales and marketing, and research and development to fuel future growth, leading to a net loss of $73.7 millionb for the year. However, the company's robust revenue growth, expanding customer base, and strong renewal rates (96%) indicate a healthy underlying business.
The filing also highlights the company's successful $575 millionc convertible senior notes issuance in November 2013, providing significant capital for general corporate purposes and strategic opportunities. Investors should note the ongoing investments in international expansion and product development, which are key drivers of the company's future trajectory.
02—Key points
Key Highlights
- Significant revenue growth: Total revenues reached $424.7 million in 2013, up 74% from $243.7 million in 2012.
- Expanding customer base: ServiceNow grew its customer count by 36% to 2,061 by the end of 2013.
- Strong subscription revenue growth: Subscription revenues increased by 71% year-over-year to $349.8 million.
- Improved subscription gross margin: Gross profit percentage for subscription services rose to 75% in 2013 from 69% in 2012.
- Significant investment in growth: Sales & Marketing and R&D expenses increased by 88% and 100% respectively, signaling a focus on expansion.
- Successful debt financing: Issued $575 million in convertible senior notes in November 2013 to fund general corporate purposes.
- High renewal rates: Maintained strong customer retention with a renewal rate of 96%.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2013, ServiceNow lost $0.17.
- Revenue$424.6M100.0%
- Cost of revenue−$155.3M36.6%
- Gross profit$269.4M63.4%
- Operating costs−$335.7M79.0%
- Operating income−$66.3M15.6%
- Interest, other & tax−$7.4M1.8%
- Net income−$73.7M17.4%
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 28, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $424.65M$243.71M | +74.2% |
| Cost of Revenue | $155.26M$104.01M | +49.3% |
| Gross Profit | $269.39M$139.70M | +92.8% |
| R&D Expenses | $78.68M$39.33M | +100.0% |
| Operating Expenses | $335.66M$177.29M | +89.3% |
| Operating Income | -$66.27M-$37.58M | −76.3% |
| Interest Expense | $3.50M— | — |
| Net Income | -$73.71M-$37.35M | −97.4% |
| EPS (Basic) | $-0.11$-0.10 | −5.9% |
| EPS (Diluted) | $-0.11$-0.10 | −5.9% |
| Shares Outstanding (Basic) | 677.08M369.54M | +83.2% |
| Shares Outstanding (Diluted) | 677.08M369.54M | +83.2% |
05—Questions
Frequently Asked Questions
What is ServiceNow's primary business model and how did it perform in 2013?
ServiceNow operates on a Software-as-a-Service (SaaS) business model, offering cloud-based services to automate and manage IT service relationships. In 2013, the company demonstrated strong performance with total revenues reaching $424.7 million, a 74% increase from the prior year. This growth was primarily driven by its subscription revenue, which grew 71% to $349.8 million, supported by a 36% increase in customer count to 2,061.
How is ServiceNow investing for future growth, and what is the impact on profitability?
ServiceNow is making significant investments to fuel future growth. The company increased its Sales and Marketing expenses by 88% and Research and Development expenses by 100% in 2013 compared to 2012. These investments are critical for expanding its sales force, international operations, and product development. As a result of these growth investments, ServiceNow reported a net loss of $73.7 million for 2013, compared to a net loss of $37.3 million in 2012.
What was the company's capital structure and financing activities in 2013?
In November 2013, ServiceNow successfully issued $575 million in 0% convertible senior notes. The net proceeds from this issuance are intended for general corporate purposes, including potential acquisitions and strategic transactions. This financing bolstered the company's liquidity, with cash and cash equivalents and short-term investments totaling $634.6 million as of December 31, 2013.
What are the key risks and challenges for ServiceNow highlighted in the filing?
Key risks include the expected decline in revenue growth rate as the company matures, potential fluctuations in quarterly results impacting stock price, challenges in managing rapid growth, risks associated with service disruptions and security breaches, intense competition from larger players, and potential intellectual property litigation, such as the lawsuit filed by Hewlett-Packard. The company also notes the volatility of its stock price and the potential impact of its convertible notes and related hedging activities.
06—Continue